The Market Nobody Wanted
(FORTUNE Small Business) – By his own admission Robert Johnson got into the cable TV business through "total serendipity." But certainly, what he's achieved since founding Black Entertainment Television (BET) in 1980 has been based on anything but dumb luck.
Armed with just a $15,000 bank loan and a $500,000 investment from cable magnate John Malone, Johnson created a 24-hour programming service aimed at African Americans. By 1991, BET had risen to become the first black-controlled company on the New York Stock Exchange. It later went private, before being sold to media giant Viacom in 2001 in a deal valued at nearly $3 billion.
That represented a very handsome $1.5 billion payoff for Johnson, the son of a factory worker and the only one among his ten siblings to attend college. How did he get his start? While working as a lobbyist for the cable industry--during a car ride to meet with the late Congressman Claude Pepper, in fact--he saw the need for cable programming aimed at black viewers. (More on that from Johnson below.) But Madison Avenue was skeptical. (As it still is today, Johnson will tell you.) For years Johnson had the proverbial door slammed in his face, often walking away on the brink of tears from meetings with potential advertisers. Ultimately he built BET Holdings into the largest minority cable channel in the country, reaching 66 million U.S. households. A major part of his formula: Keep costs low and find inexpensive ways to provide programming. Rather than pursue lots of expensive original work, Johnson mostly aired already produced music videos and reruns of sitcoms such as The Jeffersons and Benson. He didn't, it would be fair to say, get a warm reception from critics, who accused him, among other things, of aiming too low. But BET's audience loved the fare. Now 56, Johnson still runs BET, based in Washington, D.C., for Viacom. --Brian Dumaine
"I always worked. I was not afraid of getting my hands dirty. I was born in Mississippi but spent almost all of my childhood in Freeport, Ill. I remember that when the county fair would come to town, I'd get a summer job as a roustabout. Part of the job included cleaning up the bathrooms and the livestock pens at the county fairground. If you ever want to know what being willing to get your hands dirty is, try cleaning up cow manure and horse manure. I lived over on the black side of town. I'd get jobs mowing lawns, tending gardens, with the guys on the white side of town. My only real entrepreneurial experience growing up was working a paper route. It was a morning paper route, and I couldn't get up in the morning. I was never a morning person. But the Rockford Morning Star had to be on people's doors by 6 and 7 a.m., and I'd get up on a cold morning and get dressed and walk up and down the street throwing papers.
You had to do your own collection. You'd go to get paid, and somebody would turn you down, and you'd have to deal with the rejection, and you'd have to go back to them again. That was the only experience I had where I was responsible for a business, as opposed to working on somebody's payroll. What did I learn? If there's anything, I felt bad because when I didn't fulfill my agreement to deliver the paper, my mother made my older brother do it. So it was probably that if you start something, you've got to finish it, because if you don't, somebody is going to get stuck with it.
Like most entrepreneurs, I never felt comfortable answering to other people. One summer when I was 19, I worked at Burgess Battery. At this factory they would stick pitch inside an aluminum tube, and then they'd go down the line and seal the batteries. The pitch would fall under the conveyor belt, and my job was to keep the floor clean. I had a system--at least I thought I had a system. As the pitch accumulated, I'd clean it, and then I'd go off, hang out, and walk around.
The guy who was the foreman wanted the floor continually cleaned. I said, 'I'm not going to do that. It's going to be clean at the end of the day, it'll be clean in the morning.' So I remember one day--on a Wednesday, I think--my boss came to me, and he said, 'You know, Johnson, Friday is your last day.' I said, 'No, Friday is not my last day.' He said, 'What do you mean?' I said, 'Today is my last day.' So I left. When I left, he said to me, 'If you're going to get a job, you'd better work for yourself, because working for other people just doesn't seem to be your cup of tea, because you've got a unique way of how you want to do things.'
After that, I attended the University of Illinois--the only one in my family to go to college--and while there I considered getting a teaching degree. I also thought about going into the foreign service to eventually become an ambassador. That led me to Princeton, where I studied international affairs. After earning a master's degree I moved to Washington, D.C., where I got a job as an aide on the Hill, and eventually as a vice president for the National Cable Television Association.
The way I got into the cable industry was total serendipity. At that time I was the press secretary to Walter Fauntroy, the District of Columbia congressional delegate. I was at a party at a next-door neighbor's home. I met this young lady, and we got to talking. And she said, 'You'd make a good lobbyist for the cable industry.' I told her I didn't know anything about cable. She said not to worry, that she hadn't known anything about it when she got into it.
She introduced me to the guy who was the head of the cable trade association, and I got a job there. My first title was vice president for pay TV, which meant I was trying to get the restrictions lifted on the exhibition of pay movies over cable. It's there where I get introduced to all these business guys, and they are all talking cable. They're talking bottom line, marketing, and everything, and I begin to see people who have a business orientation as opposed to a social or political orientation. And it's there where I see the possibility of starting a business.
Pay TV opened my eyes. Once I understood the technology and saw that the technology could take a signal and send it all across the country simultaneously to different stations, then it became clear to me that programming could be segmented and targeted to different audiences, and so it didn't take a big leap from that to say, 'Wow, wait a minute, that's what we're already doing in the black community with print.' Ebony magazine, for instance, is a targeted magazine. To some extent, black radio is a targeted medium. I said, 'Wow, you could take this concept of technology and target black programming, which has always been a dream of various individual black media types--creating a black-oriented network.' The idea was talked about in various blue-sky articles that argued that cable was going to be the democratization of media, but nothing like that existed.
One day in early 1979 I took a cab ride, and it was then that everything came together for me. What happened was that there was a guy, whose name escapes me, who was trying to start a channel for the elderly. As a lobbyist for the cable trade association, I had the job of taking him or anybody else interested in cable up to Capitol Hill to get introduced around. So he said he'd like to see Claude Pepper--the Florida Congressman who chaired the Select Committee on Aging. I said, 'Yes, we can do that.'
During the cab ride to the Hill, I said, 'What are you going to talk to Senator Pepper about?' He said, 'Well, I've got this idea for the channel for the elderly, and here's some of the facts about it.' And I looked at him, and he said, reading from his business plan, that the elderly population in the U.S. is X number. The elderly population in America has X amount of spending power. The elderly population in America has X type of consumption patterns. Then it came to me. I said, 'Gee, you could say the same thing about the black population.' He said, 'Yes, you could.' I said, 'Can I use this business plan for something I'm thinking about?' He said sure. So I just changed the word 'elderly' to 'black' and plugged in the appropriate numbers.
That was the beginning. In the spring of that year, I took out a $15,000 loan from a bank and set out to form a business. My big break came when cable magnate John Malone, then CEO of Tele-Communications Inc., the country's third-largest cable company, decided to invest in my company, even though I had no experience running any business, never mind a national media company. John Malone was a member of the board of the NCTA, where I was a lobbyist. So John and I just sort of started talking, and we developed a friendship.
Politically he's right, I'm left. But somehow we bonded, and I said, 'John, if I ever have an idea about something, can I bring it to you?' He said, 'Sure, Bob.' When I took the idea for a black cable network to John, he liked it because he had an interest in a cable system in Memphis and it needed programming, and he felt this was a way to get low-cost programming for his cable system. So what I found out is that when you have an idea to sell, the easiest person to sell it to is (1) somebody who understands what you're talking about, and (2) somebody who can see your idea helping him. Also, in the case of John, somebody who believes and wants to support entrepreneurs with vision. He just happened to be that kind of guy.
And I had no track record as an entrepreneur at all. So I went to John with my business plan, and John said, 'Okay, Bob, how much do you need?' I said, 'I have a budget that says I need half a million dollars.' And John said, 'Okay, Bob, here's what I'll do.' TCI didn't have a lot of money either. It was struggling at that time. He said, 'I will buy 20% of your company for $180,000, and I'll loan you $320,000. And I'll have 20%, and you'll be 80%. Is that a deal?' I said, 'That's a deal.'
Now, I am convinced that even if John had reversed the numbers and said, 'I'll be 80% and you'll be 20%,' I would still have made the deal. But he never said that. So he calls in his lawyer--this all takes place in probably 40 minutes. The lawyer drafts up this two-page agreement. I sign the paper and give it back to John for him to sign. Then he signs it. So I wait until I get my money, and then I say, 'John, I've never run a business. What advice can you give me?' John said, 'Get your revenues up and keep your costs down.'
I followed Malone's advice, keeping my costs in line and borrowing money to continually expand the business. I kept my programming expenses low by broadcasting reruns of black sitcoms like The Jeffersons and music videos of black recording artists. I shunned formal market research--going mostly by my gut. I had a professor when I was at Princeton who had this analogy that went 'Most people use statistics the way a drunk uses a street lamp: to hold them up, rather than for illumination.' So we kept costs down by not spending a lot on market research.
Five years later BET became profitable. We did run losses for five years. But that was based on going to John Malone and the other investors at that time, including Taft Broadcasting, and saying, 'John, we have to grow the business.' He'd say, 'What did you say you were going to do?' I'd say, 'I'm going to do $800,000.' He'd say, 'Yeah, you did. You did $850,000.' So Malone would put more money into my business as debt. Not as equity. So the equity ratios weren't changing. I was able to keep my control of the business. I asked him one time, 'John, why did you do this deal where I ended up with the majority control?' He said, 'Well, Bob, I always knew you'd work harder for yourself than you would for me.'
One thing I learned is that it's very important to seek out strong partners. Most minority companies grew up with 100% black ownership, particularly those that just targeted black communities. BET from its inception always had money from white investors--in this case, Malone, later HBO, and Taft Broadcasting. I believed that it was in BET's best interest to have strategic partners like that in a world where most of your business clients were white. It was an invaluable asset.
To me, the reason John Malone is so important to the story of BET is that John put not only his money into BET but also his prestige. So when I would go out to do other deals, people would ask, 'Who's in this deal?' And I'd say, 'Malone,' and Malone was like the Good Housekeeping seal. And so we gained instant credibility because everybody knew Malone's reputation as a dealmaker, visionary, and somebody who was always ahead of the curve. But it was still a constant struggle to get the cable operators to value the black households in their neighborhood the same as they valued the white households. BET never got the same subscriber fees or advertising revenues as our peer-group channels. Advertisers still discount the value of a black viewer, black subscriber, black reader, black consumer, but you just keep chipping away at it.
I remember walking out of some advertising agency almost in tears trying to sell this product. I'm told by the advertisers, 'Well, blacks don't buy that product,' and then I walk into any of my friends' houses, and I see those products all over the kitchen. Or they tell me, 'We don't need to reach the black consumer' or 'We already reach the black consumer over regular TV. We overdeliver black households because they watch so much television.'
As for critics who say our programming can be better, I tell them I'm not a programmer. I'm not going to go out to Hollywood with a truckload of cash and say, 'All you producers, come up with the next big shows.' That was never my thing, because I didn't see the connection between huge expenses in programming and advertisers stepping up their ad rates. They were only going to pay so much. That's why building a business targeted at blacks has always been--and will probably always be--a challenge. But I have this philosophy--it came from a buddy of mine that played football, and it's called Welcome to the NFL. If you play football, you put on a helmet, you walk inside those sidelines, you know you are going to get hit. That's part of the game. You know what? You just keep on going there.